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Forex News – Eurozone December Markit Manufacturing PMI shows continued expansion
January 2, 2014 1:18 pmVideo
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The announcement of the final Eurozone Manufacturing business sentiment index (PMI) for December was a confirmation that the region’s economic recovery was on track. Hence, economic growth in the 1% to 1.5% range looks quite plausible for the Eurozone during the New Year.
The final headline figure came in line with expectations at 52.7, confirming the flash estimate that was released earlier in mid-December. The December figure still marked a substantial improvement from November’s 51.6 level. 52.7 was the highest PMI reading for the Eurozone in 2 ½ years.
As can be seen from the chart, after the Eurozone climbed out of recession in the second quarter of 2013, the Manufacturing PMI crossed the 50 expansion / contraction dividing line in July. It has since held above 50, signaling manufacturing growth.
Of course it should be noted that levels between 50 and 53 mark a moderate pace of expansion and that the Eurozone figures are comparatively weaker than the performance of the manufacturing sectors of other developed nations such as the United States and the United Kingdom.
The report contained generally upbeat signals for the bigger Eurozone economies with the exception of France. Italy was the one country that was substantially upgraded compared to the flash estimate, as it’s index rose by more than 1.5 points to 53.3. This reinforced expectations of positive economic growth in Italy during 2014. Spain’s number was less than 50, but substantially improved compared to the November survey.
Germany remained ‘leader of the pack’ among the big Eurozone economies with a reading of 54.3, which represents an acceleration from November’s 52.7. On the other hand, France slipped badly to 47.0 from November’s 48.4. According to Markit’s Chief Economist, the drop in French manufacturing sentiment was partly due to worsening exports, which could in turn reflect deteriorating competitiveness for France as the nation has fallen behind on structural reforms.
The tone of the report was positive, but it was (mostly) a mere confirmation of the flash estimates – with the exception of the Italian figure. This caused traders to book profits on long euro positions, after a strong rally of the single currency in the final days of the year. The euro was the best performing of the four major currencies – the other three are yen, dollar and pound – during 2013.
Following the report, the interest rate spread between German and Italian and Spanish government bonds fell to its lowest in 2 ½ years, signaling increased market confidence in the peripheral countries’ ability to come to grips with the Eurozone debt crisis.
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